Effective board-level risk oversight

On 16 June 2022, the Board Leadership Center was pleased to welcome Regine Slagmulder, Professor of Accounting & Control and Senior Partner at Vlerick Business School, Hervé Coppens, Non-Executive Director at Solvay, Eric Hermann, Independent Non-Executive Director at Crelan and Axa Bank Belgium, and Patrick De Schutter, Independent Director, for an engaging and insightful dialogue about effective board risk oversight.

The conversation opened with a summary of the results of a study done by Vlerick Business School and KPMG in Belgium based on interviews with 20 top board directors and chairpersons in Belgium. We then further explored different risk views in a panel discussion.

1. Risk culture is key, and a sound risk culture creates the foundations for risk oversight.
2. Risks and strategy: more connections are needed – what are the risks? What are the absorbing capacities? What is the risk appetite and derived risk limits? What are the opportunities within those limits? How are we measuring and monitoring risks?
3. Risk management supports the realization of strategic objectives by maximizing the returns within a given risk appetite.
4. The maturity of risk oversight in the financial services sector is largely a result of the regulation put in place since the 2008 financial crisis.
5. Even without regulation, risk oversight is on the rise within non-financial services sectors, driven in part by the increasing pressure of stakeholders (including NGOs, investment funds, and activists) on boards to further promote and enlarge the scope of their risk oversight and reporting.
6. The role of the Audit Committee is prominent and interactions with the Risk Committee are important, but their remits are different. While the Audit Committee is primarily focused on historic figures, the Risk Committee needs to be looking ahead.
7. Geopolitical risks are fundamentally important, not only for companies active in multiple countries, but also for those whose stakeholders (customers, supply chains) could be impacted by geopolitical factors. Risk assessment generally remains within the companies and boards, but they may be assisted by external specialists to identify the key risks – both direct and indirect.
8. Be prepared for the unexpected and the unknown. In a world with so many vulnerabilities, risk anticipation is key. It’s important that while there’s an increasing focus on the short-term, that the board keeps a long-term view as well.
9. Leading practice: hold a joint session of the board and risk committee to avoid silos and promote an open dialogue. This will help to ensure that potential new risks are captured, increase awareness across the board and ensure that key risk discussions are taking place at the level of the board – and not only within the Risk Committee (or equivalent). Sending a survey to all board members ahead of this joint session can also facilitate the discussion.
10. With increasing complexities, board composition is key, and boards need to reflect on skills and expertise that need to be present and/or where external expertise should be brought in.